Romney’s Flawed Lesson in Political Economy

Say what you like about Mitt Romney—I’ve already said a lot—but he rarely fails to come through when his opponents need him. If Jimmy Carter’s grandson, the would-be opposition researcher who evidently helped to dig up the offending video, had written the script himself he could hardly have come up with something more damaging than the videos secretly taped at a Boca Raton fundraiser this spring and published by Mother Jones on Monday. What sort of candidate, speaking in a quasi-public setting—there are potential leakers lurking in all fundraisers—would say almost half of the voters in the election “are dependent on the government,” that they “believe that they are victims,” and then go on to say, “my job is not to worry about these people. I’ll never convince them they should take personal responsibility and care for their lives”?

The answer proffered by my colleague Amy Davidson and numerous other commentators: a heartless plutocrat who holds the impoverished and the working poor in contempt. Sounding for all the world like Josiah Bounderby, the sneering mill owner in Dickens’s “Hard Times,” Romney went on to say, “I have inherited nothing. Everything that Ann and I have, we earned the old-fashioned way.” Bounderby, it turned out, had exaggerated his humble origins, and so, of course, has Romney—not that anybody could possibly believe him. When your father was the C.E.O. of a big auto company and the governor of Michigan, and you were educated at the three-hundred-acre campus of the Cranbrook School, posing as Horatio Alger is plain silly.

But, then, Romney is a profoundly silly candidate. Even when he has the germ of a serious point to make, he tends to express it in such a garbled, exaggerated, offensive, and ill-thought-out manner that he gets himself into a world of trouble. It happened in London, where his comments about the preparations for the Olympics turned him into a hated figure. It happened in Israel, where, in ruminating on the relationship between culture and economic growth, he insulted the entire Palestinian people. It happened again last week, when Romney’s grandstanding on the protests in the Middle East backfired. And it happened on the video, where he veered from a legitimate discussion about the political economy of tax policy into an Ayn Rand-style rant about the fecklessness and dependency of many, many, many Americans.

The germ of a serious point Romney had to make is this: in a world in which large numbers of poor and working-class voters don’t pay income tax, the standard Republican prescription of across-the-board cuts in income-tax rates—a prescription Romney has adopted wholesale—may no longer have the potency it once did. Over the past twenty years, governments of both parties have adopted policies that raised the income threshold at which households start paying income tax. Thanks to the child tax credit (enacted by Gerald Ford and expanded by George W. Bush) and the Earned Income Tax Credit (also enacted by Ford and expanded significantly by George H. W. Bush), a typical family of four can now make about forty-five thousand dollars a year before being subject to income tax. In New York, Los Angeles, and Washington, an annual income of forty-five thousand dollars isn’t much, but on a national basis it isn’t much below the median household income, which in 2011 was about fifty thousand dollars.

There are all sorts of qualifications that Romney should have mentioned before heaping forty-seven per cent of the population into the pile marked “dependency culture” and dismissing them. Firstly, although these people don’t pay income tax, they do pay other sorts of taxes: payroll taxes, excise taxes, and state and local taxes. According to calculations by the Congressional Budget Office based on the 2007 tax year, households in the poorest fifth of the income distribution pay about four per cent of their income to the federal government, and households in the second quintile pay about eleven per cent. These are effective tax rates, which account for taxes and benefits of all kinds levied and distributed by the federal government. The rates for households in the the middle quintile, the fourth quintile, and the top quintile are as follows: 14.3 per cent, 17.4 per cent, 25.1 per cent. The federal government takes more from the rich than the poor, on average, but Romney shouldn’t have any problem with that. Faced with charges that he intends to give a big tax cut to the wealthy, he’s repeatedly said that he intends to preserve a progressive tax system.

And Romney should have considered the elderly. According to a 2011 study by the non-partisan Tax Policy Center, about a quarter of the households that don’t pay any income tax are made up of retired or semi-retired folks, who benefit from expanded personal deductions and the exclusion of some Social Security payments from taxable income. Since most of these people paid higher taxes throughout their working lives, it hardly seems fair to classify them as tax-avoiding dependents. (Romney also didn’t mention that many of these retirees vote Republican.)

Setting aside the elderly, those who don’t pay income tax consist largely of two groups: households in poverty, many of them single-parent families; and working families who earn incomes that are above the official poverty line but not high enough for them to build a decent life without getting some additional help—or so politicians from both parties have decided. To suggest, as Romney did, that these hard-working families “believe that they are victims … believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it,” isn’t just insulting: it is grossly inaccurate.

Many educated people have little idea about the level of wages in this country. According to the Employment Policy Institute, more than half of all jobs pay less than thirty-four thousand dollars a year. A quarter of jobs pay less than twenty-three thousand dollars—the official poverty line for a family of four. The child tax credit and the earned-income tax credit were both designed to reward low-paying work rather than inactivity—that is why they attracted Republican support. They operate like a negative income tax—an idea Milton Friedman, yes that Milton Friedman, originally proposed—which tops up the incomes of the working poor and the working near-poor.

Either Romney was embellishing, and pandering to his potential donors, or he didn’t know what he was talking about. Still, the basic political point he was trying to make is true. Proportionately speaking, fewer Americans pay income tax than used to be the case. For a party that, since Ronald Reagan, has largely built its success on slashing income-tax rates, this is an important development—as is the fact, which the Wall Street Journalreported on earlier this year, that almost one-in-two (forty-nine per cent) of Americans live in households where somebody is receiving some type of government benefit. In conservative circles, these facts are widely discussed, and the smarter Republicans are aware of the challenges they present.

Romney, in his more considered moments, is capable of framing the issues in a less inflammatory manner. At a press conference on Monday night, after the video had emerged, he attempted to explain what he had meant to say when somebody at the Florida fundraiser asked him how he intended to garner enough votes to defeat Obama:

[I]t’s by focussing on those folks that are neither in his camp nor in my camp. Of course there’s a very different approach of the two different campaigns … I recognize that among those that pay no tax, approximately forty-seven per cent of Americans, I’m not likely to be highly successful with the message of lowering taxes. That’s not as attractive to those who don’t pay income taxes as it is to those who do. And likewise those who are reliant on government are not as attracted to my message of slimming down the size of government. And so I then focus on those individuals who I believe are most likely to be able to be pulled into my camp and help me win the 51 or 50.1 per cent that I need to become the next President.

That’s better than calling people “victims” and dependents. Actually, though, Romney goofed on this occasion, too, once again mistakenly giving the impression that almost half of all households don’t pay any tax. Evidently, what he meant to say in the third sentence of his remarks was this: “I recognize that among those that pay no (income) tax, approximately forty-seven per cent of Americans, I’m not likely to be highly successful with the message of lowering (income) taxes.” But instead of saying that, Romney twice left out the word “income,” which I’ve taken the liberty of adding for him. Yes, he partially corrected himself in the next sentence, when he did use the term “income taxes,” but that’s hardly good enough. The entire point of his press conference was to clarify things.

It turns out that clarity isn’t the Mittster’s strong suit. And that’s putting it kindly.